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Let’s face it – we’re not sooth-sayers and neither are our financial advisors.  So from time to time – a market or an investment is going to stick us with a loss.  No big deal.  Get back on the up elevator and it will soon be a distant memory. But the truth is, losses leave permanent scars. 

Here’s a simple example to make the point. 

Growth Rate

Age

Year

7.20% Uninterrupted

7.20% w/5% loss in Y3

25

0

$        10,000

$     10,000

26

1

$        10,720

$     10,720

27

2

$        11,492

$     10,184

28

3

$        12,319

$     10,917

29

4

$        13,206

$     11,703

30

5

$        14,157

$     12,546

31

6

$        15,176

$     13,449

32

7

$        16,269

$     14,418

33

8

$        17,440

$     15,456

34

9

$        18,696

$     16,568

35

10

$        20,042

$     17,761

 

 

45

20

$        40,085

$     35,523

 

 

55

30

$        80,169

$     71,046

 

 

65

40

$     160,339

$   142,091

 

 

75

50

$     320,677

$   284,182

 

 

85

60

$     641,354

$   568,364

$     72,990

 

This table shows what happens when a 25 year-old invests $10,000 at 7.2% (since at 7.2% money doubles every 10 years). 

Sure enough, in the uninterrupted column, $10,000 becomes $20,000 in ten years; and continues to double again every 10 years thereafter until age 85, at which point it has swelled all the way to $641,354.

But when we introduce a small, 5% loss in Year 3, our account shrinks by $536.   No problem – we get it back on the 7.2% growth train, recover the loss, and move on. 

But that $536 went into someone else’s pocket, and will never find its way back to ours.  It’s gone forever.  And because it’s gone forever, it leaves a permanent scar.  By age 85, that $536 loss means we end up $72,990 less than we would have had by avoiding the loss in the first place.   That’s not just a scar, it’s complete financial disfiguration. 

Imagine if – over the course of an investing lifetime, you lost $536 ten times.  The cumulative effect of what may have seemed like small, insignificant setbacks at the time, could reduce your net worth and your lifestyle by more than a half million dollars.

Get serious about eliminating investing losses.  It is completely possible – you just have to find an advisor committed to that end.